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Article
Publication date: 14 October 2020

Muhammad Tahir and Md Badrul Alam

This paper empirically examines the perceived relationship between banking sector performance and FDI inflows, thereby highlighting an underexplored area in the existing…

Abstract

Purpose

This paper empirically examines the perceived relationship between banking sector performance and FDI inflows, thereby highlighting an underexplored area in the existing literature.

Design/methodology/approach

To provide evidence from the South Asian context, this study selected five economies of the same region based on the data availability. A panel dataset, collected from the internationally reliable sources for the period 1998–2017, is analyzed with the help of different econometric techniques, including pooled least squares, fixed effects, generalized least square and two stages least squares.

Findings

The results indicate a significant negative relationship between banking sector performance and FDI inflows while demonstrating a significant positive association of inflation and trade openness with FDI inflows Moreover, higher per capita income, which is one of the indicators of a growing economy, exerts a statistically significant positive impact on FDI inflows. Finally, institutional factors have not played a significant role in attracting FDI in the sampled countries.

Practical implications

The results demonstrate a unique outcome from the perspective of the relationship between banking sector performance and FDI inflows, and hence policymakers of the developing countries in general and South Asian countries in particular would benefit from the current study significantly.

Originality/value

The obtained results are original as we have provided comprehensive evidence on the relationship between FDI and banking sector performance in the SAARC context for the first time.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 10 November 2020

Fatma Taşdemir

This paper investigates the main drivers of foreign direct investment (FDI) inflows for a balanced panel of 11 Middle East and North Africa (MENA) economies over the…

Abstract

Purpose

This paper investigates the main drivers of foreign direct investment (FDI) inflows for a balanced panel of 11 Middle East and North Africa (MENA) economies over the 1995–2017 annual period. The author postulates that the impacts of the main pull (growth) and push (global financial conditions, GFC) factors may not be invariant to endogenously estimated thresholds for structural domestic conditions (SDCs) including trade and capital account openness, financial development, human capital (HC) and natural resource endowments.

Design/methodology/approach

The author investigates whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors on FDI inflows for the MENA sample by employing panel fixed effects threshold procedure of Hansen (1999). As a robustness check, the author also present the results of the dynamic panel data two-step system generalized method of moments (GMM) estimation, which explicitly consider the potential endogeneity of SDC along with main pull factor for the evolution of FDI inflows.

Findings

Growth, GFC and SDC are important drivers of FDI inflows. The impacts of SDC tend to be higher in countries with higher financial depth, openness to international trade and finance and lower natural resource and HC endowments. The sensitivities of FDI inflows to GFC are substantially higher in the countries which are more open to international trade and capital flows and higher levels of financial depth. FDI inflows are found to be pro-cyclical and this pro-cyclicality tends to be much higher for the episodes exceeding the SDC thresholds.

Practical implications

Improving SDC including higher openness to international trade and finance and financial development may be effective in encouraging FDI inflows. The findings support an argument that, better SDC are crucially important not only for attracting FDI but also achieving the growth benefits of FDI inflows. Therefore, improving SDC appears to be an important growth-oriented policy agenda for emerging market and developing economies (EMDEs) including MENA.

Originality/value

The impacts of the main push and pull factors on FDI (and capital) inflows may be nonlinear. The literature often tackles the nonlinearity issue either by some interaction specifications or imposing exogenous thresholds. The literature, however, is yet to comprehensively investigate whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors. The author aims to contribute to the literature by estimating endogenous SDC threshold levels for the impacts of the main determinants of FDI flows for MENA.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 13 November 2019

Cheshta Kapuria and Neha Singh

The purpose of this paper is twofold: to explore the interrelationships between FDI with growth and sustainability dimension; and to empirically analyze the four…

Abstract

Purpose

The purpose of this paper is twofold: to explore the interrelationships between FDI with growth and sustainability dimension; and to empirically analyze the four dimensions, namely, environmental, economic, social and governance of sustainable FDI for South Asia and West Asia.

Design/methodology/approach

The data utilized in the paper is sourced from the World Development Indicators and the Worldwide Governance Indicators, covering South and West Asian region over the period 2011–2017. The paper employed both static and dynamic panel (two-step difference generalized methods of moments) estimation methods.

Findings

The results established a significant and robust relationship of past year FDI inflows with the current year’s value of FDI inflows for both the regions. Further, some variances in the relationships such as control of corruption, long-run carbon emissions, research and development, number of trademark applications as per the contextual factors have been detected.

Research limitations/implications

The conclusions related to gender and governance found in this paper will be of interest to both researchers and policy makers for substantially reorienting the sustainability attributes to the foreign investment.

Originality/value

The authors’ main contributions are: to encapsulate the conceptual framework into an empirical model by combining all the four dimensions, namely, environmental, economic, social and governance; to have analyzed the possible differences and similarities in the study based on South and West Asia; to have explored the relationship between gender and FDI.

Details

Management Decision, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 16 May 2016

Xinzhong Li and Seung-Rok Park

The purpose of this paper is to indicate trade characteristics of Foreign direct investment (FDI) inflows in China and examine the dynamic interaction between FDI inflows

Abstract

Purpose

The purpose of this paper is to indicate trade characteristics of Foreign direct investment (FDI) inflows in China and examine the dynamic interaction between FDI inflows and China’s international trade through empirical analysis.

Design/methodology/approach

At first, this paper builds the probability distribution model (Poisson and negative binomial (NB)) to capture the characteristics of spatial distribution of all kinds of FDI firms in Chinese cities and provinces based on count data, so as to indicate the potentials for further introducing FDI inflows in China; Second, this paper investigates the effects of trade on FDI firms inflows based on probability regress model (Binary Logit, Tobit, NB, Poisson, zero inflated negative binomial) and shows how international trade accelerates the different kinds of FDI firms to agglomerate in Eastern, Middle and Western region by the endowments of factors; third, this paper empirically examines the magnitude and characteristics of trade effects generated by FDI inflows by building dynamic panel model based on continuous data.

Findings

First, statistical tests of probability distribution model based on count data show that there are characteristics of spatial agglomeration of FDI firms such as manufacture firm, R & D firm, managing and marketing firm and total sectors, which obey NB distribution as whole; Second, this study indicate that FDI inflows have strong positive effects on the international trade in China’s provinces and on China’s regional trade, and that most of foreign firms in China are export oriented being strongly characterized as labor-intensive industries, especially, contributions of FDI to imports are greater than the contributions of FDI to exports in China’s Middle and Western trade, and the growth of FDI trade in China’s trade volume has been strong over the past years; third, the empirical results of models based on count data and continuous data indicate that FDI inflows have significantly positive relationship with international trade, that is, the relationship between FDI and international trade in the case of China is the characteristics with complement and imports substituting relationship.

Research limitations/implications

Because of mixed data set for FDI inflows of processing and assembling trade and production-oriented FDI, efficiency-seeking and knowledge or technology – intensive FDI inflows in the past 36 years, the paper only investigate characteristics of FDI inflows in China before the turning point of financial crisis, but it is important for capturing the whole picture of trade characteristics of FDI inflows in China.

Practical implications

The derived quantitative results imply that there are still greater potentials for further introducing FDI inflows in China, and decision-maker should make policy of introducing FDI inflows which are favorable to supporting innovative activities and economic agglomeration, and preferably encourage efficiency-seeking and export-oriented FDI inflows so as enhance quality and efficiency of economic growth, which are also helpful to accelerate upgrade of Chinese industry and gradually shorten gap of growth among Eastern, Middle and Western region.

Social implications

FDI inflows in China not only stimulate the remarkable growth of bilateral trade between host country and home country, but also promote the growth of international trade between China and the rest of the world. Thus, policies of bilateral or multilateral free-trade and investment area should be encouraged, which will be also favorable to promote the growth and welfare in all the regions.

Originality/value

This paper demonstrates that spatial distributions of FDI firms in Chinese cities and provinces obey NB probability distribution pattern, and puts forward the methodology of model based on count data and continuous data. Besides, this paper quantitatively indicates trade characteristics of FDI inflows in China as well as the dynamic interaction between FDI inflows and China’s international trade.

Details

China Finance Review International, vol. 6 no. 2
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 24 December 2020

Mustapha Immurana

Ghana is one of the countries instituting several measures toward attracting more Foreign Direct Investment (FDI) inflows. This is because, FDI is largely viewed as…

Abstract

Purpose

Ghana is one of the countries instituting several measures toward attracting more Foreign Direct Investment (FDI) inflows. This is because, FDI is largely viewed as essential to socioeconomic development. However, while population health can influence FDI inflows, it has received very little attention. This study, therefore, investigates empirically, as to focusing on population health could be a useful tool in Ghana’s attempt to attract more FDI inflows.

Design/methodology/approach

The study uses time series data on Ghana from 1980 to 2018 to achieve its objective. Life expectancy, death rate, infant mortality rate, under-five mortality rate and incidence of malaria are used as proxies for population health, while the Ordinary Least Square (OLS) and the Instrumental Variable Two-Stage Least Square (IV2SLS) regressions are employed as empirical estimation techniques.

Findings

Using the OLS regression, except the incidence of malaria, the study finds all the other population health indicators to significantly influence FDI inflows. However, after controlling for endogeneity using the IV2SLS regression, all population health indicators are found to be significant as regards their effects on FDI inflows.

Practical implications

Paying attention to population health could be an effective strategy that can be employed by policymakers in the quest to get more FDI inflows into Ghana.

Originality/value

This study, to the best of our knowledge, is the first study solely devoted to Ghana, which doing so helps in devising country-specific policies with regard to the effect of population health on FDI inflows. Further, this study becomes the first to use death rate, infant mortality rate and under-five mortality rate in examining the effect of population health on FDI inflows. Thus, since there are various causes of deaths, using indicators that capture deaths from all factors helps in giving a much broader picture with regard to the FDI population health nexus. Also, this study is the first to use up to five different population health indicators in examining the effect of population health on FDI inflows, which aids in revealing whether FDI is sensitive to the population health indicator used.

Details

International Journal of Social Economics, vol. 48 no. 2
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 9 December 2020

Sena Kimm Gnangnon

This paper aims to examine the effect of development aid volatility on foreign direct investment (FDI) volatility in aid recipient countries.

Abstract

Purpose

This paper aims to examine the effect of development aid volatility on foreign direct investment (FDI) volatility in aid recipient countries.

Design/methodology/approach

The empirical analysis has relied on a sample of 117 countries over the period 1981–2016 and used the two-step system generalized methods of moments (GMM) approach.

Findings

The findings indicate that development aid volatility exerts a positive and significant effect on FDI volatility, with the magnitude of this positive effect rising as countries’ real per capita income increases. Furthermore, development aid volatility is non-linearly related to FDI volatility, as additional rises in the degree of development aid volatility further amplify FDI volatility.

Research limitations/implications

These outcomes highlight that volatility of development aid inflows enhances the volatility of FDI inflows. Thus, the enhancement of the aid coordination system between donor-countries and recipient-countries would not only help mitigate the volatility of aid – which reduces the macroeconomic effectiveness of aid – but also stabilizes FDI inflows to developing countries.

Practical implications

A limitation of the present paper is its reliance on aggregate FDI inflows to perform the analysis. Availability of data on greenfield FDI inflows and cross-border mergers and acquisitions FDI inflows over a long-time-period would provide an opportunity to conduct an in-depth analysis of the volatility of development aid on FDI inflows volatility. Furthermore, it could be interesting to investigate in the future (if data is available) the extent to which aid coordination systems between donor-countries and recipient-countries versus recipient-countries’ domestic factors contribute to explaining the dynamics of FDI inflows volatility in recipient-countries of these two types of capital flows.

Originality/value

To the best of the authors’ knowledge, this topic has not been addressed in the literature.

Details

Review of International Business and Strategy, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2059-6014

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Book part
Publication date: 8 March 2011

Chunlai Chen

Large foreign direct investment (FDI) inflow is one of the most important features of China's economic reform and opening up to the outside world. Over the past 30 years…

Abstract

Large foreign direct investment (FDI) inflow is one of the most important features of China's economic reform and opening up to the outside world. Over the past 30 years, China has attracted over US$940 billion FDI inflows, making it the largest FDI recipient among the all developing countries. This chapter argues that FDI inflows into China have mostly come from developing economies, concentrated in China's east and southeast coastal regions, and biased toward the manufacturing sector. The large FDI inflows have greatly contributed to China's economic development. FDI has been playing an increasingly important role in China's economy in terms of capital formation, employment creation, export promotion, and integrating with the world economy. The global financial and economic crisis has had negative impact on FDI inflows into China. However, as compared to the large decline in FDI globally, FDI inflows into China have been resilient. China will continue to be one of the most attractive destinations for FDI in the future.

Details

The Evolving Role of Asia in Global Finance
Type: Book
ISBN: 978-0-85724-745-2

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Article
Publication date: 3 July 2020

Sena Kimm Gnangnon

This study aims to use a quantitative measure of trade policy space to investigate empirically whether trade policy space influences foreign direct investment (FDI) flows…

Abstract

Purpose

This study aims to use a quantitative measure of trade policy space to investigate empirically whether trade policy space influences foreign direct investment (FDI) flows to countries.

Design/methodology/approach

The empirical analysis covers an unbalanced panel data set of 158 countries, over the period 1995–2015 and uses the two-step system generalized methods of moments approach.

Findings

The results suggest that the impact of trade policy space on FDI inflows is positive and increases as countries enjoy greater trade policy space. Furthermore, advanced economies tend to experience a higher positive impact of trade policy space on FDI inflows than less advanced economies.

Research limitations/implications

These findings highlight the relevance of trade policy space for countries’ FDI inflows.

Practical implications

The analysis shows that non-trade related constraints to trade policy could reduce trade policy space and adversely influence FDI inflows, which are critical for countries’ economic growth and development.

Originality/value

To the best of the knowledge, this topic has not been addressed in the literature.

Details

Review of International Business and Strategy, vol. 30 no. 3
Type: Research Article
ISSN: 2059-6014

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Article
Publication date: 4 May 2020

Rajesh Sharma and Pradeep Kautish

Over the years, India has witnessed irregular FDI inflows. Therefore, this study aims to explore the asymmetric impact of per capita income, final consumption expenditure…

Abstract

Purpose

Over the years, India has witnessed irregular FDI inflows. Therefore, this study aims to explore the asymmetric impact of per capita income, final consumption expenditure, globalization index and exchange rate on FDI inflows in India.

Design/methodology/approach

Using the nonlinear autoregressive distributed lag bounds framework and unknown structural break, the study investigates the impacts of selected macroeconomic variables in driving FDI inflows in India during the study period (1979-2016).

Findings

The outcomes of the study confirm the asymmetric relationship between FDI inflows and its determinants during the study period. The results have confirmed that the improvement in per capita income, private consumption expenditure, globalization index and currency value appreciation play a crucial role in increasing FDI inflows in India. In contrast, the downside movements in the volume of consumption expenditure, globalization index and depreciation of the currency value in relation to the trade partners result in reducing the volume of FDI inflows in the long run.

Originality/value

For determining FDI inflows, previous studies have considered the overall impact of its potential determinants, which may provide partial information about the phenomenon. The adopted nonlinear approach highlights that both the types of fluctuations (i.e. upside and downside) in the independent variables may affect FDI inflows differently and substantially. The nonlinear association between FDI and selected determinants may be vital in formulating a long-term policy.

Details

Journal of Asia Business Studies, vol. 14 no. 5
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 9 January 2017

Tajul Ariffin Masron

Foreign direct investment (FDI) inflows into any country, especially ASEAN countries, is affected by any improvement in the institutional quality (IQ) of competitors such…

Abstract

Purpose

Foreign direct investment (FDI) inflows into any country, especially ASEAN countries, is affected by any improvement in the institutional quality (IQ) of competitors such as China. As generally investors make decisions by comparing two countries’ IQ, the ratio of two countries’ IQ matters more than a single country’s IQ. The purpose of this paper is to re-examine the role of IQ on FDI inflows in ASEAN countries for the period 1996-2013.

Design/methodology/approach

With limited information on IQ, this study pools eight ASEAN countries as the sample for analysis from 1996 until 2013. A panel dynamic approach – namely, dynamic ordinary least square and fully modified ordinary least square – is utilized.

Findings

This study confirmed that relative IQ significantly affects FDI inflows into ASEAN countries. The low effect is more reflective of the small portion of world FDI inflows into the ASEAN region.

Research limitations/implications

This study observes the crucial relationship between IQ and FDI – that the relative effectiveness of IQ in attracting FDI inflows depends heavily on the changes in both countries’ IQ. Hence, the effort of ASEAN countries to improve IQ and use it as a means to lure FDI inflows should go beyond a mere improvement. Focus should be on significant improvement of IQ so that multinational corporations will comfortably remain or inject new FDI into the country.

Practical implications

Every ASEAN country should double their efforts toward improving their IQ in order to attract future FDI.

Originality/value

Several studies have confirmed the role of IQ on FDI inflows. However, the majority of these studies have investigated the effect of IQ exclusively for a specific country even though some of them have used a panel of several countries’ data. On the other hand, investors normally evaluate their decision on whether or not to invest based on the relative terms, comparing several potential locations of investment at once. This study can be considered the first to explore the potential effect of IQ after taking into account the possibility of each ASEAN country’s IQ being easily offset by changes in the IQ of China.

Details

Journal of Economic Studies, vol. 44 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

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